ESNT reported for the 2nd qtr last week.
Here are updated numbers for ESNT through 2nd qtr 2016:
Qtr 1st 2nd 3rd 4th
Earnings
2013 .22
2014 .18 .23 .29 .33
2015 .38 .41 .44 .48
2016 .52 .57
YoY Earnings Growth
2014 50%
2015 111% 78% 52% 45%
2016 37% 39%
Current 1YPEG = 0.26
Revenue
2013 42
2014 48 54 65 73
2015 80 84 92 97
2016 103 108
YoY Revenue Growth
2014 74%
2015 67% 56% 42% 33%
2016 29% 29%
Combined Ratio (percent)
2013 73.8 58.7 54.1 57.0
2014 54.4 48.9 42.9 42.3
2015 39.3 37.6 38.4 37.8
2016 37.2 34.1
So earnings and revenue continue to grow for 2016 2nd qtr, and Combined ratio is still dropping and is now 34.1 %. 1YPEG is at .30 for share price of $26.00 – very nice.
These articles explain the metrics I am calculating, and can be used to value insurance companies in general:
http://www.investopedia.com/articles/investing/082813/how-va…
http://seekingalpha.com/article/3280525-how-to-find-a-great-…
Here are updated metrics.
Metric 1: Price to Book Tangible Book Value
Rule of thumb is P/B should be less than 2.0. At a share price of $26, ESNT has P/B of 1.92 based on 2016 2nd qtr numbers. Not over 2, so OK but not a screaming buy signal, either. However, P/B is a bit like P/E so growth can justify a higher P/B. ESNT is growing at a very healthy rate, so a P/B of almost 2 is fine, I think.
Metric 2: Premium Growth
YoY premium growth was 46% for 2015, 25% for 1st qtr 2016, and 29% for 2nd qtr. Starting to move back up after a small decline last quarter, and very healthy.
Metric 3: Net Income Growth
YoY net income growth was 78% for 2015 and 38% for 1st qtr 2016, and 41% for 2nd qtr. Another improvement over the 1st qtr.
Metric 4: Combined Ratio
The lower the better for this metric that measures how well an insurance company turns sold premiums into profit. For all of 2015, the combined ratio was 38.3% and reduced to 37.2% for 1st qtr 2016. Still dropping in 2nd qtr to 34.1%. This is so good it almost seems ridiculous.
Metric 5: Float Calculations
Float for 2015 was $219 mil and they had 20 mil return on investment for 9.1% and 1st qtr 2016 float was up to 228 mill with return of 2.7% for qtr. 2nd qtr came in at 2.8% on $237 mil - still ticking up and still juicy. (1 – combined ratio) + return on float came in at 76.6% for prior 4 qtrs. Yowsir. Finally taking the last step suggested in the Rokke article, and dividing by P/B gives 39.9% based on 2nd qtr numbers. Awesome.
Metric 6: Potential Return on Float: Equities / (Fixed Income + Cash)
For ESNT, this ratio is 22.9 for 2nd qtr 2016. Still very aggressive level which is OK as long as they are not required to pay out on a lot of claims, which is unlikely, I think.
Metric 7: Return on Equity
ESNT ROE was at 14.1% for 2015 and updated for the 2nd quarter is 14.9% for the prior 4 quarters. Since an ROE in the mid teens is considered ideal for a well-run insurance company, ESNT passes this metric.
Summary
ESNT is humming along quite nicely, and the share price has moved up to reflect that performance. As recently as late June, shares were trading around $20 so at $26 there has been a nice 30% bump. Nevertheless, I think that starting a position at these prices is reasonable considering the steady growth. Since I already have a mid-size position, I will be adding on those days where the overall market pushes the price down.
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